Although fiscal and debt profiles are temporarily deteriorating as the government responds to the COVID-19 outbreak, country's external imbalances are improving, S&P observed.

The rating agency affirmed the ratings at 'AA' with 'positive' outlook.

The positive outlook indicates that New Zealand's strong fundamentals would allow its fiscal profile to strengthen after the COVID-19 outbreak subsides, which would in turn lead to a rating upgrade in the next one to two years.

S&P noted that fundamentals remain sound as recession and fiscal measures are set to temporarily weigh on New Zealand's public finances. The general government deficit is expected to peak at about 8.5 percent of GDP in fiscal 2021 before narrowing to about 3 percent.

According to S&P, the economy will contract 2.4 percent in fiscal 2020 before growing 1.7 percent in fiscal 2021 and 4.4 percent in fiscal 2022.